Forty billion dollars of official development assistance during 1991-2012 reduced Ethiopian absolute poverty while underwriting more efficient but exclusionary public institutions. This aid-institutions paradox reflects a strong interest-alignment between major donors pursuing geostrategic objectives and poverty reduction, and a ruling-party seeking total institutional capture, fully-owned development programmes, and a developmental state with legitimizing poverty reduction. Disagreement on democratization predictably produced lackluster progress. By prioritizing adequate space for fundamental non-state stakeholders, a coalition of major donors can and must institutionalize accountability by conditioning scaled-up aid at least with respect for human rights and the rule of law.